Sunday, July 25, 2010

Weekend round up.

Larry Kudlow comments on Senate Democrats opposing tax hikes.

Steve Forbes argues the Obama Administration doesn't understand markets.

Minyanville wonders why the euro is rising against the dollar.

Don Luskin debates gold with James Altucher.

Martin Feldstein predicts fiscal austerity will lead to economic contraction, but thinks it's worth it to shrink government.

Keynesian Martin Wolf joins the attack on supply-side economics.

Earlier this year, John Tamny critiqued Wolf.

Is it me or are some Keynesians borderline hysterical about a possible supply-side resurgence in the face of their model's failure?


  1. This comment has been removed by a blog administrator.

  2. Sean,

    I agree with you. Keynesians are petrified of the supply-side policy mix. Unfortunately, only one part of the mix is getting any attention these days: maintaining low tax rates on labor and capital.

    The other part of the mix (and the most important part in my mind) is stable money.

    No one on the national stage is even talking about the need for a strong and stable dollar or have linked its absence to the various financial crises we have experienced in recent years.

    Back in 2003, GWB was good on taxes (putting aside his various impotent tax rebates) but he was always lousy on the dollar. The poor dollar policy helps explain the "lost decade" for stocks and the diversion of scarce capital into real estate and other commodities.

    The Keynesians should just chill out. Until policymakers start talking about getting the dollar right, the supply-siders will remain on the outside looking in.

  3. Martin Wolf: “It should be noted… that a federal default would surely create the biggest financial crisis in world economic history.” This would make it eclipse the Great Depression. And yet the Great Depression coincided precisely with fulsome attempts to stave off federal default.

    In 1931, the US government deficit came in five times larger than predicted. Treasury concluded that fiscal balance was essential to economic recovery, and the road was paved to increase the marginal rate by nearly three-fold, to 60-some percent, with the Revenue Act of 1932. That high marginal rate only formed the foundation of the FDR-era rate, and real-sector output would not exceed 1929 levels until 1947 – the worst spate of macroeconomic performance in the history of the industrial revolution.

    The US did not “default” during this period. And yet it is not plausible to hold that had it defaulted in the early 30s in lieu of the tax increases, economic performance would have been as poor. Skipping a payment in 1931-2 in favor of 2/3 lower taxes would have made things worse? That’s some hypothetical.

    Today, with the dollar down by a factor of 95% since the establishment of the Fed, it is not only idle to suggest that the US has not continuously defaulted on its debt; it is also to call into question our comprehension of the flawed governmental response to the crisis of the ’30s.